Saving Money Is Easy If You Set the Right Goals

I clearly remember the very first thing I ever saved up for: a Sony Sports Walkman. I already had a walkman, but its vintage was questionable, its branding unrecognizable and, because my parents had bought it for me, its price was undoubtedly "reasonable." Oh, and it totally wasn't "shock-proof" and "waterproof."

The problem was, the Sony version cost $65. For someone who only got a couple dollars per week of allowance, coming up with that much money wasn't easy. Lucky for me, it turned out to be gratifying. Once amassed in $1 and $5 bills, $65 makes for a very impressive stack of cash. The kind that I was inclined to keep under the pillow, so that I could pull it out and flip it through my fingers like some casino high-roller. I began to do that frequently enough that I think my Dad finally took pity on me and chipped in the last $10. (See also: 25 Ways to Save $5 This Week)

So, although it took what felt like a very long time, I finally got my Walkman. But I got something else too: A very positive experience, the kind that probably helped me develop a better attitude about saving.

The Power of Purpose

If you've ever made a decision — I mean really clenched up your fists and got determined — about a goal, you know it's a powerful thing. It doesn't look like much (besides maybe those clenched fists), but it's a threshhold. Once you cross it, you're ready to take that big, ugly goal to the mat. You will not be defeated. So we know that setting goals works. But why does it work? (See also: Defining and Deconstructing Goals)

Mind Over Muscle

Well, it's a matter of psychology. If you're into sports, you might know that athletes often visualize winning a race or scoring a goal many times before they compete. That's because research has shown that thinking about something activates all the same neural pathways as if you were actually doing it. The same thing happens when you set a goal. Your brain grows as your mind naturally runs through all the actions saving for that goal will entail. So, by the time you have to actually act on your savings goal, it isn't so hard. After all, according to your brain, you've done this before.

Mind Over Temptation

Another funny thing happens when you set goals, too: Your ability to resist short-term temptations increases. According to a study published by the Brain and Spine Institute in Paris, imagining delayed rewards makes them more detailed, richer, and real enough to keep you from giving them up in favor of the many little temptations you're faced with every day. So, by setting a long-term goal for something specific, you reduce the odds that the money will disappear before you get there.

That's why saving without a goal in sight feels aimless, uninspired, and tedious. As a result, it tends to lose momentum — and fast. So, let's take a look at some of the common things we often have to save up for, and why and how you should set specific goals to achieve them.

Education

Because of the rising cost of education, this is one goal many young people have had to get a jump on in high school. The problem is that while most people aim to "save as much as they can," they often really end up saving what they fail to spend first ... which isn't quite the same thing.

Why You Need a Goal

Most students live at home before going to college. If that's you, the luxury of free rent probably means you don't have to track your expenses all that carefully (or at least I sure didn't). That means that what you make is more likely to be spent — and fast. Pick acollege savings goal that's challenging but achievable, and do whatever you can to reduce the amount you have to borrow. Student loans are big debts that tend to stick around for a long time. Instead, visualize yourself debt free! (See also: Ways to Save on College Tuition)

Emergencies

An emergency fund is a savings goal most financial experts say everyone should aim for. It's there to prevent a financial disruption — such as an expensive home or car repair, a health issue, or even job loss — from totally derailing your finances.

Why You Need a Goal

Emergencies aren't fun and neither is saving for them, which makes holding yourself accountable essential. Plus, the faster you can get your emergency fund together, the sooner you can get back to your regular financial life. Most financial experts recommend that you save three to six months' worth of living expenses. Work out what your basic expenses are, decide how much you need to save, and then get to it! (See also: How to Create Your Emergency Fund)

A Home

Yes, you can technically buy a house with debt — or mostly debt — but if the recent mortgage meltdown proved anything, it's that too much leverage is a very bad thing for everyone involved.

Why You Need a Goal

If you don't commit to saving at least a 5% down payment, chances are you'll end up digging around for a mortgage that doesn't require one. They exist, but they're bad news. They cost you more in interest and put you at much greater risk of being upside down in your home loan. A 5% down payment will do, but if you can save more than 20% of the purchase price of your home, you'll also save on Private Mortgage Insurance (PMI) (or CMHC in Canada). Go and visit a mortgage lender to find out how much you qualify before you start saving. After all, you need a number to set a goal, and the home you want isn't always the one you can afford.

Retirement

Retirement? What's that supposed to cost? And how the heck can do go about setting reasonable and achievable goals for something that's so big and, for many of us, is still so far away? (See also: How Much Money Will You Need to Retire?)

Why You Need a Goal

Let's face it: The payoff in saving up for retirement — while essential — isn't that exciting or glamorous. At best, it allows most of us to maintain our standard of living. The biggest problem is that it's very hard to know how much it'll take to even do that. That kind of ambiguity is not motivating, which is why I think that when it comes to retirement, it's best to make a goal of the process, rather than the outcome, at least at first. Resolve to start saving as early as possible, save money from each and every paycheck, and max out any and all contributions from your employer. If you achieve those simple goals consistently throughout your working years, you'll be way, way ahead of most people.

Unfortunately, debit cards and electronic banking have largely done away with the satisfaction of saving a big stack of cash. What hasn't changed is the importance of setting savings goals. I don't have that Sony Walkman anymore, but it never stopped working, and it eventually went to charity. I'd like to think someone, somewhere is still listening to it. Either way, I still hear it, loud and clear.

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